Does tax residency status impact your ability to receive an SA inheritance?

The finalisation of a deceased estate is in itself a time consuming and frustrating process for South Africans. Further complexity and exasperation is caused when one of the heirs is an expatriate.

When inheriting from an SA source and you are living outside of SA, you are required to have placed your emigration on file in order to receive that inheritance. Expatriates will need to show proof of their non-tax residency and compliancy status to be able to receive their inheritance abroad.

To be noted as a non-tax resident you will have to go through a formal declaration process with the South African Revenue Service (Sars) whereby you will need to prove your non residency based on the qualifying criteria.

The solution

To be able to prove to your non-residency, and formally cease your tax residency you will need to go through the financial emigration process should you meet the criteria.

This is a once-off process whereby taxpayers can cease their tax residency if they have the intention to relocate to another country permanently. If you have the intention to reside abroad permanently and the intention can objectively be substantiated, you will break the ordinarily resident test and qualify to cease your tax residency.

In 2001 SA dissolved the source-based tax system and replaced it with a residency based taxed system. Under the new system you can be differentiated between a resident and a non-resident for tax purposes. A resident for tax purposes is taxed on their worldwide income and a non-resident for tax purposes is taxed on their income derived from a source within SA.

When an individual was never ordinarily resident in South Africa a physical presence test is applied to determine if an individual is a tax resident in South Africa.  In terms of this test, an individual must be present in South Africa for a period or periods exceeding 91 days in aggregate during the current year of assessment and, exceeding 91 days in aggregate during each of the five years of assessment preceding the current year of assessment and, exceeding 915 days in aggregate during the five years of assessment preceding the current years of assessment.

This test is seen as a secondary test to the ordinarily resident test.

It is important to note that the onus is always on you, the taxpayer, to prove to Sars that you qualify for the above options.

This is, however, a very complicated and technical process that is best done through professionals who are experienced in this area.

Inheritance

Once you have declared your formal emigration and it has been approved by Sars, you will be then issued with an Emigration Tax Clearance Status pin which will be used as a clearance certificate to release the inheritance and may be used to remit your inheritance abroad.

The inheritance funds are blocked, and the taxpayer is required to fulfil this obligation before the inheritance could be received.

There is no inheritance tax on the individual in South Africa, however the inheritance does still need to be declared to Sars, for both SA tax residents and tax non-residents.

Victoria Lancefield is GM of financial emigration & tax residency and Martin Bezuidenhout is an expatriate tax attorney at Tax Consulting SA.